Every couple of months, someone calls or emails one of our China lawyers for help in “getting their molds” back from their Chinese manufacturer. Whenever a foreign company terminates its Chinese manufacturer, it is at great risk of having the Chinese manufacturer keep the foreign company’s molds. The Chinese manufacturer typically holds on to the molds to extract money from the foreign company, but sometimes it does this simply for revenge.
We have not once pursued any claims against a Chinese manufacturer for the return of molds because none of the people who have contacted us had contracts good enough on which to base a lawsuit. On the flip side, our mold contracts have always worked so as to prevent the manufacturer from even trying to hang on to our client’s molds.
How can you achieve that sort of result?
The way to avoid having your Chinese manufacturer run off with your molds is to make sure you require the manufacture to sign (and seal) a contract (preferably in Chinese) that makes clear to whom the molds belong (to you) and what will happen to the Chinese manufacturer (specific damages) if it fails to return your molds to you. It is also critical that your contract be written with a Chinese (civil) law system in mind and not a U.S./British common law system.
Even better, you should, if possible, get a deposit for your molds, which deposit you will return when your molds are returned to you. If the Chinese manufacturer will not give you a deposit for your molds, (most will not), put in a liquidated damages provision that applies if your mold is not returned when specified. That provision alone goes a long way towards taking away any incentive for your Chinese manufacturer to hang on to your molds.
When we are retained to draft a stand-alone mold agreement or when we put a mold provision in an OEM Agreement, we usually start out by sending the following questionaire to our client, which in turn is typically followed by a subsequent set of more specific questions:
- Please provide a 1-2 paragraph description of what you will be doing in China that will be covered by this mold agreement. This is essential: we need to know, in layman’s terms, what is going on
- What kind of items will be the subject of the agreement: molds, tooling, equipment?
- Where will the tooling be located? One manufacturer? Numerous?
- Do you have a direct relationship with the manufacturer, or are you working with an intermediary (sourcing agent or similar)?
- What agreements are now in place concerning the basic business relationship with the various parties? If you have any written agreements, please send them.
- Does the tooling already exist?
- What will be the source of the tooling? Will the manufacturer design and manufacture the tooling? Will the manufacturer purchase from others? If yes, under what kind of agreement? Will the tooling be contributed to the manufacturer by the buyer? By the buyer’s agent? Some other entity?
- What will be the method of payment for the tooling, and who will pay?
- Who will design the tooling? In what form will the design be provided to whoever will manufacture the tooling?